Paychex, Inc. Reports Third Quarter Results and Improves Full Year Guidance; Reflects Client Base Growth and Strong Client Retention
Paychex reported third-quarter results for the period ending February 28, 2021, with total revenue decreasing 3% to $1.1 billion. Operating income remained steady at $468.6 million. Diluted earnings per share declined 1% to $0.97. The company maintained strong client retention and highlighted successful cost-saving initiatives. However, service revenue faced a 2% reduction, attributed to lower employee volumes. Looking ahead, Paychex forecasts total revenue to range from a 2% decrease to flat, amid ongoing COVID-19 impacts.
- Client retention remains strong at record levels.
- Operating income steady at $468.6 million, with an operating margin increase to 42.2%.
- Successful product innovations and new service offerings show growth potential.
- Total service revenue decreased 3% to $3.0 billion for the nine-month period.
- Diluted earnings per share down 5% to $2.31 for the nine-month period.
- Interest on funds held for clients dropped 29% to $15.1 million.
Paychex, Inc. (the “Company,” “Paychex,” “we,” “our,” or “us”) today announced the following results for the quarter ended February 28, 2021 (the “third quarter”), as compared to the corresponding prior-year period:
-
Total service revenue decreased
2% to$1.1 billion . -
Total revenue decreased
3% to$1.1 billion . -
Operating income was comparable at
$468.6 million . -
Diluted earnings per share and adjusted diluted earnings per share(1) each decreased
1% to$0.97 per share and$0.96 per share, respectively.
(1)
|
Adjusted diluted earnings per share is not a United States (“U.S.”) generally accepted accounting principle (“GAAP”) measure. Adjusted diluted earnings per share includes an adjustment for net tax windfall benefits related to employee stock-based compensation payments. Please refer to the “Non-GAAP Financial Measures” section on page 4 of this press release for a discussion of non-GAAP measures and a reconciliation to the U.S. GAAP measure of diluted earnings per share. |
Martin Mucci, President and Chief Executive Officer, commented, “Client retention remains strong and at record levels, and our results for the third quarter show that our resilient business model has helped us navigate the uncertainties created by COVID-19. We continue to see progress in our key indicators and remain committed to providing our clients the flexibility, technology, and resources they need to respond and adapt to the uncertainties of the COVID-19 environment.”
Mucci added, “We’re anticipating client needs with solutions that prepare them for what’s next. Our sales, support, product development, and marketing teams carefully listen to customer feedback—bringing to market new tools and technology designed to efficiently manage payroll, staffing, time tracking, and scheduling. Demonstrating our commitment to innovate and meet our client’s needs, we were pleased to receive our fifth consecutive Stevie® Award as a 2021 winner for the Most Valuable COVID-19 Response. Paychex's multifaceted response included our comprehensive COVID-19 Help Center, state-specific resources, educational webinars, product innovations, in-app Paycheck Protection Program tools, specialized employee training, and more. This recognition speaks to the company’s ability to deliver innovative solutions and we will continue to focus on meeting the evolving needs of our clients and the business community.”
Third Quarter Business Highlights
Results of operations compared with the prior-year period continue to be impacted by the COVID-19 pandemic. However, client retention remains strong and at record levels.
Management Solutions revenue was comparable at
- Increase in our client base and penetration of our suite of solutions, particularly HR outsourcing, retirement services, and time and attendance.
- Solid growth experienced from new services and product initiative offerings.
- Lower check volumes and annual calendar year-end revenues as clients continue to operate with fewer employees.
PEO and Insurance Solutions revenue was
- Decrease in the number of worksite employees at our clients.
- Decrease in state unemployment insurance within our PEO driven by rising unemployment costs.
- Lower workers’ compensation premiums driven by reduced wages and softening of market rates.
Interest on funds held for clients decreased
Total expenses decreased
Operating income was
Our effective income tax rate was
Fiscal Year-To-Date Business Highlights
Results for the nine months ended February 28, 2021 (the “nine months”), as compared to the corresponding prior-year period, are as follows:
-
Total service revenue and total revenue each decreased
3% to$3.0 billion . -
Operating income decreased
5% to$1.1 billion . Adjusted operating income(1) decreased2% to$1.1 billion . -
Diluted earnings per share decreased
5% to$2.31 per share. Adjusted diluted earnings per share(1) decreased3% to$2.32 per share.
Adjusted operating income and adjusted diluted earnings per share include adjustments for one-time non-recurring cost saving initiatives of
(1)
|
Adjusted operating income and adjusted diluted earnings per share are not U.S. GAAP measures. Please refer to the “Non-GAAP Financial Measures” section on page 4 of this press release for a discussion of these non-GAAP measures and a reconciliation to the most comparable U.S. GAAP measures of operating income and diluted earnings per share. |
Financial Position and Liquidity
As of February 28, 2021, our financial position remained strong with cash, restricted cash, and total corporate investments of
Cash flows from operations were
During the nine months, we paid dividends of
Non-GAAP Financial Measures
|
|
For the three months ended |
|
|
|
For the nine months ended |
|
|
||||||||||||||
|
|
February 28, |
|
February 29, |
|
|
|
February 28, |
|
February 29, |
|
|
||||||||||
$ in millions |
|
2021(1) |
|
2020 |
|
Change |
|
2021(1) |
|
2020 |
|
Change |
||||||||||
Operating income |
|
$ |
468.6 |
|
|
$ |
470.1 |
|
|
— |
% |
|
$ |
1,106.9 |
|
|
$ |
1,160.9 |
|
|
(5 |
)% |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost-saving initiatives(2) |
|
|
— |
|
|
|
— |
|
|
|
|
|
32.2 |
|
|
|
— |
|
|
|
||
Total non-GAAP adjustments |
|
|
— |
|
|
|
— |
|
|
|
|
|
32.2 |
|
|
|
— |
|
|
|
||
Adjusted operating income |
|
$ |
468.6 |
|
|
$ |
470.1 |
|
|
— |
% |
|
$ |
1,139.1 |
|
|
$ |
1,160.9 |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
$ |
350.5 |
|
|
$ |
354.5 |
|
|
(1 |
)% |
|
$ |
834.5 |
|
|
$ |
877.4 |
|
|
(5 |
)% |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Excess tax benefit related to employee stock-based compensation payments(3) |
|
|
(1.7 |
) |
|
|
(3.3 |
) |
|
|
|
|
(17.2 |
) |
|
|
(14.8 |
) |
|
|
||
Cost-saving initiatives(2) |
|
|
— |
|
|
|
— |
|
|
|
|
|
24.3 |
|
|
|
— |
|
|
|
||
Total non-GAAP adjustments |
|
|
(1.7 |
) |
|
|
(3.3 |
) |
|
|
|
|
7.1 |
|
|
|
(14.8 |
) |
|
|
||
Adjusted net income |
|
$ |
348.8 |
|
|
$ |
351.2 |
|
|
(1 |
)% |
|
$ |
841.6 |
|
|
$ |
862.6 |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Diluted earnings per share |
|
$ |
0.97 |
|
|
$ |
0.98 |
|
|
(1 |
)% |
|
$ |
2.31 |
|
|
$ |
2.43 |
|
|
(5 |
)% |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Excess tax benefit related to employee stock-based compensation payments(3) |
|
|
— |
|
|
|
(0.01 |
) |
|
|
|
|
(0.05 |
) |
|
|
(0.04 |
) |
|
|
||
Cost-saving initiatives(2) |
|
|
— |
|
|
|
— |
|
|
|
|
|
0.07 |
|
|
|
— |
|
|
|
||
Total non-GAAP adjustments |
|
|
— |
|
|
|
(0.01 |
) |
|
|
|
|
0.02 |
|
|
|
(0.04 |
) |
|
|
||
Adjusted diluted earnings per share |
|
$ |
0.96 |
|
|
$ |
0.97 |
|
|
(1 |
)% |
|
$ |
2.32 |
|
|
$ |
2.39 |
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
$ |
350.5 |
|
|
$ |
354.5 |
|
|
(1 |
)% |
|
$ |
834.5 |
|
|
$ |
877.4 |
|
|
(5 |
)% |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense, net |
|
|
8.5 |
|
|
|
6.2 |
|
|
|
|
|
25.4 |
|
|
|
18.8 |
|
|
|
||
Income taxes |
|
|
112.1 |
|
|
|
109.7 |
|
|
|
|
|
253.8 |
|
|
|
268.1 |
|
|
|
||
Depreciation and amortization expense |
|
|
46.4 |
|
|
|
50.1 |
|
|
|
|
|
144.6 |
|
|
|
158.0 |
|
|
|
||
Total non-GAAP adjustments |
|
|
167.0 |
|
|
|
166.0 |
|
|
|
|
|
423.8 |
|
|
|
444.9 |
|
|
|
||
EBITDA |
|
|
517.5 |
|
|
|
520.5 |
|
|
(1 |
)% |
|
|
1,258.3 |
|
|
|
1,322.3 |
|
|
(5 |
)% |
Cost-saving initiatives(2) |
|
|
— |
|
|
|
— |
|
|
|
|
|
32.2 |
|
|
|
— |
|
|
|
||
Adjusted EBITDA |
|
$ |
517.5 |
|
|
$ |
520.5 |
|
|
(1 |
)% |
|
$ |
1,290.5 |
|
|
$ |
1,322.3 |
|
|
(2 |
)% |
(1)
|
The calculation of the impact of non-GAAP adjustments on diluted earnings per share is performed on each line independently. The table may not add down by +/- |
(2) |
One-time costs and corresponding tax benefit recognized related to the acceleration of cost-saving initiatives, including the long-term strategy to reduce our geographic footprint and headcount optimization. These events are not expected to recur. |
(3) |
Net tax windfall benefits related to employee stock-based compensation payments recognized in income taxes. This item is subject to volatility and will vary based on employee decisions on exercising employee stock options and fluctuations in our stock price, neither of which is within the control of management. |
In addition to reporting operating income, net income, and diluted earnings per share, which are U.S. GAAP measures, we present adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and adjusted EBITDA, which are non-GAAP measures. We believe these additional measures are indicators of our core business operations performance period over period. Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA, are not calculated through the application of U.S. GAAP and are not required forms of disclosure by the Securities and Exchange Commission (“SEC”). As such, they should not be considered a substitute for the U.S. GAAP measures of operating income, net income, and diluted earnings per share, and, therefore, they should not be used in isolation but in conjunction with the U.S. GAAP measures. The use of any non-GAAP measure may produce results that vary from the U.S. GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
Business Outlook
Our outlook for the fiscal year ending May 31, 2021 (“fiscal 2021”) incorporates anticipated impacts resulting from the COVID-19 pandemic based on current assumptions and market conditions. Changes in the macroeconomic environment could alter our guidance. During the nine months, we recognized one-time costs of
-
Management Solutions revenue is anticipated to be in the range of flat to
2% ; -
Total service revenue is anticipated to be in the range of (
1% ) to1% ; -
Total revenue is anticipated to be in the range of (
2% ) to flat; -
Adjusted operating margin(1) is anticipated to be in the range of
36% to37% ; -
Adjusted EBITDA margin(1) is anticipated to be in the range of
41% to42% ; -
The effective income tax rate for fiscal 2021 is anticipated to be in the range of
23% to24% ; and -
Adjusted diluted earnings per share(2) is anticipated to be in the range of (
2% ) to flat.
Other aspects of our guidance for fiscal 2021 remain unchanged from what we provided previously.
(1) |
Adjusted operating margin and adjusted EBITDA margin are not U.S. GAAP measures. Adjusted operating margin is calculated as operating margin, adjusted for one-time non-recurring items, as a percentage of total revenue. Adjusted EBITDA margin is calculated as net income, adjusted for interest, taxes, depreciation, amortization and one-time non-recurring items, as a percentage of total revenue. We believe that the exclusion of certain one-time non-recurring items when calculating these measures provides a better indicator of our core business operations performance period over period. |
(2) |
Adjusted diluted earnings per share is not a U.S. GAAP measure. Please refer to the “Non-GAAP Financial Measures” section on page 4 of this press release for a discussion of this non-GAAP measure and a reconciliation to the most comparable U.S. GAAP measure of diluted earnings per share. |
Environmental, Social, and Governance (“ESG”)
As part of what it means to be Paychex, we are focusing our ESG efforts where we can have the most positive impact. To learn more about our latest initiatives and work we are doing, please visit our Corporate Social Responsibility Page. Information available on our website is not a part of, and is not incorporated into, this press release.
Quarterly Report on Form 10-Q
We anticipate filing our Quarterly Report on Form 10-Q (“Form 10-Q”) for the third quarter within the next few days, and it will be available at our Investor Relations Page. This press release should be read in conjunction with the Form 10-Q and the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in that Form 10-Q.
Webcast Details
Interested parties may access the webcast of our Earnings Release Conference Call, scheduled for April 6, 2021, at 9:30 a.m. Eastern Time, at our Investor Relations Page. The webcast will be archived for approximately 90 days. Our news releases, current financial information, SEC filings, and investor presentations are also accessible at our Investor Relations Page.
About Paychex
Paychex, Inc. (Nasdaq:PAYX) is a leading provider of integrated human capital management solutions for human resources, payroll, benefits, and insurance services. By combining its innovative software-as-a-service technology and mobility platform with dedicated, personal service, Paychex empowers small- and medium-sized business owners to focus on the growth and management of their business. Backed by more than 45 years of industry expertise, Paychex serves more than 680,000 payroll clients as of May 31, 2020 across more than 100 locations in the U.S. and Europe, and pays one out of every 12 American private sector employees. Learn more about Paychex by visiting paychex.com and stay connected on Twitter and LinkedIn.
Cautionary Note Regarding Forward-Looking Statements
Certain written and oral statements made by us may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words and phrases as “we expect,” “expected to,” “estimates,” “estimated,” “intend,” “overview,” “outlook,” “guidance,” “we look forward to,” “would equate to,” “projects,” “projections,” “projected,” “projected to be,” “anticipates,” “anticipated,” “we believe,” “believes,” “could be,” “targeting,” and other similar words or phrases. Examples of forward-looking statements include, among others, statements we make regarding operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share growth, or similar projections.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, many of which are outside our control. Our actual results and financial conditions may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance upon any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
- the impact of the COVID-19 pandemic on the U.S. and global economy, and in particular on our small- and medium-sized business clients;
- changes in governmental regulations and policies;
- our ability to comply with U.S. and foreign laws and regulations;
- our ability to keep pace with changes in technology and to provide timely enhancements to our products and services;
- our compliance with data privacy laws and regulations;
- the possibility of cyberattacks, security vulnerabilities and Internet disruptions, including breaches of data security and privacy leaks, data loss and business interruptions;
- the possibility of failure of our operating facilities, computer systems, or communication systems during a catastrophic event;
- the failure of third-party service providers to perform their functions;
- the possibility that we may be subject to additional risks related to our co-employment relationship with our PEO;
- changes in health insurance and workers’ compensation insurance rates and underlying claim trends;
- our clients’ failure to reimburse us for payments made by us on their behalf;
- the effect of changes in government regulations mandating the amount of tax withheld or the timing of remittances;
- volatility in the political and economic environment;
- risks related to acquisitions and the integration of the businesses we acquire;
- our failure to comply with covenants in our debt agreements;
- changes in the availability of qualified people, including management, technical, compliance and sales personnel;
- our failure to protect our intellectual property rights;
- the possible effects of negative publicity on our reputation and the value of our brand; and
- potential outcomes related to pending or future litigation matters.
Any of these factors, as well as such other factors as discussed in our SEC filings, could cause our actual results to differ materially from our anticipated results. The information provided in this document is based upon the facts and circumstances known as of the date of this press release, and any forward-looking statements made by us in this document speak only as of the date on which it is made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of issuance of this press release to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.
PAYCHEX, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In millions, except per share amounts) |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
For the three months ended |
|
|
|
For the nine months ended |
|
|
||||||||||||||
|
|
February 28, |
|
February 29, |
|
|
|
February 28, |
|
February 29, |
|
|
||||||||||
|
|
2021 |
|
2020 |
|
Change(2) |
|
2021 |
|
2020 |
|
Change(2) |
||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Management Solutions |
|
$ |
846.8 |
|
|
$ |
850.0 |
|
|
— |
% |
|
$ |
2,267.0 |
|
|
$ |
2,301.2 |
|
|
(1 |
)% |
PEO and Insurance Solutions |
|
|
249.8 |
|
|
|
271.5 |
|
|
(8 |
)% |
|
|
715.8 |
|
|
|
762.6 |
|
|
(6 |
)% |
Total service revenue |
|
|
1,096.6 |
|
|
|
1,121.5 |
|
|
(2 |
)% |
|
|
2,982.8 |
|
|
|
3,063.8 |
|
|
(3 |
)% |
Interest on funds held for clients(1) |
|
|
15.1 |
|
|
|
21.2 |
|
|
(29 |
)% |
|
|
44.8 |
|
|
|
61.6 |
|
|
(27 |
)% |
Total revenue |
|
|
1,111.7 |
|
|
|
1,142.7 |
|
|
(3 |
)% |
|
|
3,027.6 |
|
|
|
3,125.4 |
|
|
(3 |
)% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of service revenue |
|
|
328.4 |
|
|
|
340.3 |
|
|
(3 |
)% |
|
{
"@context": "https://schema.org",
"@type": "FAQPage",
"name": "Paychex, Inc. Reports Third Quarter Results and Improves Full Year Guidance; Reflects Client Base Growth and Strong Client Retention FAQs",
"mainEntity": [
{
"@type": "Question",
"name": "What were Paychex's earnings for the third quarter of fiscal 2021?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Paychex reported diluted earnings per share of $0.97 for the third quarter of fiscal 2021."
}
},
{
"@type": "Question",
"name": "How much did total revenue decrease for Paychex in Q3 2021?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Total revenue for Paychex decreased 3% to $1.1 billion for the third quarter of fiscal 2021."
}
},
{
"@type": "Question",
"name": "What is Paychex's outlook for total service revenue for fiscal 2021?",
"acceptedAnswer": {
"@type": "Answer",
"text": "Paychex anticipates total service revenue to range from a 1% decrease to flat for fiscal 2021."
}
},
{
"@type": "Question",
"name": "How has COVID-19 impacted Paychex's third-quarter results?",
"acceptedAnswer": {
"@type": "Answer",
"text": "COVID-19 has affected Paychex's results, leading to decreases in service revenue and diluted earnings per share."
}
}
]
}
FAQ
What were Paychex's earnings for the third quarter of fiscal 2021?
Paychex reported diluted earnings per share of $0.97 for the third quarter of fiscal 2021.
How much did total revenue decrease for Paychex in Q3 2021?
Total revenue for Paychex decreased 3% to $1.1 billion for the third quarter of fiscal 2021.
What is Paychex's outlook for total service revenue for fiscal 2021?
Paychex anticipates total service revenue to range from a 1% decrease to flat for fiscal 2021.
How has COVID-19 impacted Paychex's third-quarter results?
COVID-19 has affected Paychex's results, leading to decreases in service revenue and diluted earnings per share.
Paychex Inc
NASDAQ:PAYXPAYX RankingsPAYX Latest NewsOct 10, 2024
Paychex Declares Quarterly Dividend
PAYX Stock Data
51.60B
359.90M
10.7%
79.81%
5.25%
Software - Application
Services-engineering, Accounting, Research, Management
United States of America
ROCHESTER
| |||||||||